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Technology Costing Methodology Handbook—Version 2.0 FIPSE Technology Costing Methodology Project

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  • Technology Costing Methodology HandbookVersion 2.0

    FIPSE

    Technology Costing

    Methodology Project

  • Technology Costing MethodologyHandbook Version 2.0

    By Dennis Jones

    National Center for Higher Education Management Systems (NCHEMS) In partnership with the Western Cooperative for Educational Telecommunications (WCET)

  • 2004 Western Cooperative for Educational Telecommunications (WCET) Western Interstate Commission for Higher Education (WICHE)

    WCET P.O. Box 9752

    Boulder, CO 80301-9752 http://www.wcet.info

    All rights reserved. Any portion of this Handbook may be published or cited in an unaltered form, as long as WCET is cited. If you need more information, please contact [email protected]

    For more information, contact:

    Western Cooperative for Educational Telecommunications Email: [email protected] Web: http://www.wcet.info

    September 2004

  • i

    CONTENTS

    Page

    PREFACE ...................................................................................................................................... ii

    I. INTRODUCTION AND PURPOSE ..................................................................................... 1

    II. COST CALCULATION PROCEDURES: COURSE AS THE UNIT OF ANALYSIS ... 19

    III. ALTERNATIVE UNITS OF ANALYSIS ........................................................................... 41

    IV. CONVENTIONS FOR USE IN DATA EXCHANGE ....................................................... 48

    A. Introductory Comments........................................................................................................... 48

    B. Standard Definitions................................................................................................................. 49

    V. SELECTED REFERENCES .............................................................................................. 65

    Page TABLES Table 1 Costing Activity Structure 22 Table 2 Objects of Expenditure 25 Table 3 Cost Summary Matrix 27 Table 4 Cost Data Summary and Average Cost Calculation 38 Table 5 Credit Hour Conversion 51 Table 6 Objects of Expenditure 56

    FIGURES Figure 1 Data Structure 2 Alternatives 5 Figure 2 The Underlying Model (A, B, and C) 8 Figure 3 Costs Incurred at Multiple Sites 10 Figure 4 Framework for Costing Methodologies 13

    APPENDICES Appendix A Classification of Instructional Programs A-1 Appendix B Definitions of Activities B-1 Appendix C Definitions of Objects of Expenditure C-1 Appendix D Materials Related to Activity Based Costing D-1

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    PREFACE

    In the mid-1990s, a series of questions arose regarding the cost of using various forms of information technologies (IT) to deliver instruction to students. Legislators in one state wanted data on the effectiveness of their investment in a statewide telecommunications network. Faculty in another state were concerned about the cost of implementing the new educational technologies. Another states governor imposed performance audits on all state entities, including cost analyses. More specific questions included:

    What are the per student costs associated with alternative forms of instructional delivery? How do costs of alternative methods compare to more traditional, face-to-face classroom instruction?

    Under what conditions, if any, do alternative instructional delivery modes become cost-effective? For example, are there enrollment levels at which electronically mediated instruction becomes more cost-effective than classroom delivery?

    At the time, no one would admit to having answers to these reasonable questions. Although numerous cost studies of IT had been undertaken, they were uncoordinated and ad hoc in nature. Certainly, there was insufficient empirical evidence to yield rules of thumb that could inform managerial decisions.

    When these costing questions were posed to Dennis Jones, President of the National Center for Higher Education Management Systems (NCHEMS), he responded to the effect that cost analysis to determine the relative effectiveness, performance, or savings associated with various forms of instructional delivery cannot be done without a generally accepted methodology.

    No such methodology existed at that time. Consequently, the Western Cooperative for Educational Telecommunications and NCHEMS proposed and the Fund for the Improvement of Postsecondary Education (FIPSE) funded the TCM project in order to provide

    an authoritative costing analysis tool, including standard definitions of cost categories, for institutions and multi-institutional agencies to: a) analyze the costs of instructional approaches that make heavy use of technology; and b) to legitimately compare cost data for different instructional approaches.

    A good deal has happened since publication of the TCM Handbook, Version 1.0 in 2001. Three years later in 2004, the occasion of the second edition of the Handbook is an appropriate place to take stock of what has happened with the TCM Project, to present a set of findings and conclusions, and to suggest a future direction for the TCM Project.

    Current status of the TCM Project The TCM Handbook Version 1.0 (2001) was developed in consultation with 17 higher education institutions. In all, 12 institutions undertook specific pilot tests of the TCM methodology (reports on the 12 test sites are contained in the TCM Casebook, 2001). A second round of funding from FIPSE expanded the TCM Project to include eight more institutions that provided a wider diversity of costing situations. In addition, a supplemental grant from the Andrew W.

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    Mellon Foundation provided funding to develop the TCM Tabulator, a spreadsheet program to facilitate TCM computations, and to further explore the theoretical implications of the TCM data that had been collected (Jewett, 2002, Jewett and Henderson, 2003). The TCM Tabulator is an interactive spreadsheet program that greatly eases campus implementation of TCM and its related cost-data-gathering activities. A conference on TCM implications, jointly sponsored by WCET and the Southern Regional Education Board, entitled Costing and Financing Instructional Technologies in Higher Education: Practical Lessons and Policy Implications, was held in Washington D.C., in May 2002. A completed project evaluation report (Wallhaus, 2003) addresses how the TCM has been used by colleges and universities. TCM training materials will be available in 2004. In addition to this second version of the TCM Handbook, a second TCM Casebook is also being published. These materials are available at the TCM website , along with continuing updates on the project. The TCM is a tool for cost analysis TCM is a tool for analyzing educational technology costs. TCM is not a set of accounting protocols. Since campuses vary widely in their accounting software and procedures, creating an accounting tool useful to more than a handful of institutions would be impossible. TCM is not a cost/benefit analysis. Since definitions of quality and benefits vary widely, these determinations are left to the individual campuses that implement TCM with the caveat that cost comparisons that do not take quality aspects into consideration can be worse than useless.

    1) The TCM is the only costing methodology designed with the expressed intent to create a standardized way to compare the costs of alternative modes of instructional delivery (i.e., classroom and various applications of information technology). TCM allows costing data from campus accounting systems to be transformed into a standard format for making cost comparisons. It was developed with advice from a broad range of higher education administrators (financial, academic, media/computer, student affairs, etc.) and state level agencies. The methodology received wide review and comment before the Handbook was published. The TCM also builds upon earlier cost comparison work done by Bates (1995), Rumble (1997), and Jewett (1998). It has the further advantage that its development is led by Dennis Jones of NCHEMS, who had a key role when the Program Classification Structure (PCS) was first developed and the earlier classroom instruction cost studies were undertaken.

    2) The TCM is consistent with the Program Classification Structure (instructional program, research program, community service program, academic support program, student services program, etc.) developed by NCHEMS in the 1960s. As such, it is consistent with higher education financial reporting systems. It is worth noting that when the PCS was originally developed, classroom instruction was essentially the only mode of delivery employed in higher education in the U.S.

    3) The TCM is comprehensive in its perspective on costs, making provision for all types of institutional costs to be identified and measured (including, for example, capital costs, costs borne by others, and costs of unused capacity). The comprehensive nature of the TCM

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    provides the basis for a continuing process to resolve additional conceptual cost issues as they are identified.

    4) The TCM focus is on the collection of detailed cost data related to the instructional and academic support programs and especially related to the use of alternative means of course delivery. The explicit intent of TCM is to allow comparable and reliable estimates of the costs of these alternative modes that can inform campus management decisions.

    5) The TCM provides a set of rules and assumptions for making specific cost calculations that can be used to assist management decisionmaking. A central component is the use of activity analysis as a way of assigning resource costs to courses. It also provides advice on how data can be collected and how much detail should be sought (e.g., the rule of materiality).

    6) The TCM incorporates a theoretical model (mini-BRIDGE) that serves as both a guide to organizing and interpreting the cost data obtained and an hypothesis regarding the basic cause-and-effect relationships that are relevant for cost comparisons (Jewett and Henderson, 2003). TCM provides the capability of not only making comparisons of the specific costs at a given enrollment level when offering a course by different methods but also provides the user with estimates of the parameters of a cost model that allows comparisons of costs at various enrollment levels. This is a considerable advantage given the different cost structures of classroom and the various mediated technologies.

    Differences between TCM Handbook Version 1.0 and Version 2.0 The differences between Version 1.0 and Version 2.0 of this Handbook are mostly editorial, based upon feedback from pilot sites and those who have implemented this methodology. Most of the changes involved clarifying the wording in the instructions and adding additional examples. New to this version are:

    This preface includes summaries of the findings of the TCM and TCM/BRIDGE projects.

    The conclusion of Chapter 2 has been rewritten to better explain the connection between the TCM cost estimates and the mini-BRIDGE model.

    Appendix D describes the principles of activity-based costing. The TCM Tabulator, Version 2.0 is being released in conjunction with TCM

    Handbook, Version 2.0. The new version of the TCM Tabulator reflects the changes made to this version of the Handbook. To address needs expressed by users, two new products will also be released:

    The TCM Tabulator EZ a shorter version of the TCM Tabulator intended for new users who wish to practice or for those who want to create shorter reports.

    The TCM Tutorial a step-by-step tutorial designed to help all users improve their effectiveness and efficiency when using the TCM Tabulator.

    Conclusion I trust that you will find the TCM Handbook Version 2.0 to be a valuable tool to analyze the educational technologies at your institution. The goal was to create a Handbook that would give enough direction to ease your analyses, but still provide enough flexibility to meet the unique

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    circumstances found on your campus. Judging from the feedback from our pilot sites, I believe we met that goal. Russell Poulin Associate Director Western Cooperative for Educational Telecommunications September 2004

    TCM Pilot Campus Conclusions/Findings Adapted from Dennis Jones, TCM Casebook 2001, pp. v-vi. In the process of refining the procedures described in the TCM Handbook, 17 institutions were gracious enough to volunteer as pilot test sites. While the primary purpose of the pilot test activity was to refine the procedures contained in the Handbook, the tests also yielded data of interest in their own right. While the samples are too small to provide definitive answers to key management questions, the preliminary findings are tantalizing. My interpretation of the results suggests that:

    Within the parameters of course enrollments and methods tested, technology-mediated delivery was more expensive than face-to-face instruction in 10 of the 12 cases that provided complete cost estimates. There were two instances in which mediated instruction was less expensive (Georgia, Case 3 and Louisiana, Case 4). Research and modeling in other projects has found that scale mattersthere are conditions under which technology-mediated delivery is less expensive than traditional classroom instruction. Continued efforts must be made to identify those conditions.

    Cost differentials arise for different reasons depending on the method of delivery: For satellite and television-based delivery, the additional costs can be traced to

    communications costs.

    For online courses, cost differentials arise out of the need to invest in course development activities to make courses adaptable to Web-based delivery.

    As an aside, I would note that relatively small course development costs that are frequently found suggest many institutions are putting classroom-based courses on the Internet rather than fundamentally reengineering courses to incorporate different pedagogies that have the possibility of making truly effective use of the available technology.

    There is a tradeoff between planning and development costs (Washington State University, Case 12). Time spent in careful planning and design is more than offset by a reduction in development costs. Think before you leap!

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    Course completion rates are affected by mentoring activities and strategies. Cost effective incorporation of strategies for accomplishing this particular function is critical to successful online courses (Florida State University, case 2).

    Receive-site costs are real and cannot be assumed to be free to provider institutions. Costs borne by others can dramatically affect cost comparisonsand ultimately decisions about the most efficient ways of delivering instruction.

    Most importantly, paraphrasing a 1992 admonition Its the people, stupid. Inclusion of technology and other capital costs in the calculation is not the difference maker. These costs pale in comparison to the people costs in spite of the large sticker prices associated with acquisition of the capital items. In the end, the determinants of comparative costs are:

    The amount, type, and costs of the human assets utilized in the process.

    The unique talents of different kinds of employees that take advantage of the possibilities of differentiated staffing and allow increased scale to be achieved in a responsible manner.

    The key decisions are people decisions, not technology decisions. Technological capacity presents us with the opportunity, but not necessarily the motivation, to rethink the ways in which students are aided in their acquisition of new knowledge and skills. TCM/BRIDGE Project, Conclusions/Findings Adapted from Frank Jewett, Applications of the Mini-BRIDGE Model to TCM Cost Data, WCET, May 2002, pp. 4-5. Jewett visited eight of the original TCM pilot sites. Six of the cases had collected sufficiently detailed cost date to allow completion the modeling work. The primary objective was to develop a model (tool) to assist in interpreting and comparing the TCM cost estimates for various delivery modes. One of the primary outcomes of the project was the application of the TCM cost data to the mini-BRIDGE model to make cost comparisons, e.g., classroom and mediated course costs at various levels of course enrollment. Such a tool provides campuses with the capability of using the TCM cost data to project the levels of course enrollments necessary to recoup initial technology investments.

    Conclusions that emerged from the work included:

    During the course of the TCM/BRIDGE Project, an agreement was reached between the Chancellors Office of California State University and WCET that, (1) allowed WCET to host the BRIDGE project on its Web site, and (2) clarified the ownership of the BRIDGE project as future versions are created. This agreement essentially provided a new home for BRIDGE and ensured its continuing availability to users.

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    All six cases illustrated that technology-mediated courses (of whatever type) tend to have higher fixed costs and lower variable costs than classroom versions.

    The distinction between (fixed) course-related costs and (variable) enrollment-related costs is central to understanding the scalability of courses. As enrollment increases, fixed costs are spread over larger numbers of students and causing average cost per student to decline. It is these fixed costs, coupled with increased enrollment, that give rise to economies of scale.

    Because of these economies of scale, mediated instruction can be less expensive than classroom instruction if course enrollments are sufficiently large. Five of the six cases demonstrated that this outcome is possible.

    One case demonstrated that course sharing among campuses is a way to reduce fixed costs.

    One case collected data to demonstrate that there is a learning curve effect in converting classroom courses to online courses. The cost of a first conversion tends to be greater than subsequent conversions.

    Adding course revenues to the analysis presents a more complete picture for planning purposes, especially for extension or other self-supporting units.

    Evaluation of the TCM Phase II Pilot Tests Adapted from Robert Wallhaus evaluation report, pp. 5-7 TCM is an important tool for supporting resource allocation decisions both internal and external to programs and institutions. TCM can be used effectively in formulating tuition and fee policies, in analyzing the trade-offs across different instructional delivery modes, and designing technology-based courses and programs. Knowledge of cost patterns, combined with information about learning outcomes and student satisfaction, is also fundamentally important in making decisions about the extent and direction of institutional investments in new technologies. There is little question about the value of the TCM in these different contexts, which attests to the strong interest in TCM expressed in statewide sessions to introduce the costing methodology and in conferences sponsored by WCET and other organizations across the country. The following conclusions and suggestions, gleaned from the TCM evaluation, are presented to guide the further development of this important planning and management tool. The TCM Tabulator Every effort should continue to be made to ensure that the Tabulator is user friendly, based upon what is learned by the WCET staff and consultant as technical assistance is provided to schools as they implement TCM. This would include facilitating data input and report generation. The utility and feasibility of including a notes file in the Tabulator should be explored so that it provides easy tracking of the decision rules that were used in making

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    expenditure allocations to activities and courses. Further, development of a Tabulator users manual or help search capability should be considered. The ability to enter program level data directly into the Tabulator would facilitate its use when an entire technology-based program is delivered and costs can be isolated at the program level. Similarly, guidelines for costing programs should be added to the TCM Handbook. The BRIDGE model is a very useful tool for simulating the costs and economies of scale associated with different delivery modes and enrollment levels. The output of the Tabulator can be viewed as the input to BRIDGE. The capability of effectively linking these two tools would enhance the utility of both. Assignment of personnel expenditures The most difficult step in the TCM process is the allocation of faulty and staff compensation across courses and activities. In their initial implementation, institutions usually have no historical basis for assigning these expenditures; nor do they have experience in carrying out activity analyses to support these allocations. Two suggestions are made to help overcome these difficulties. First, there are some institutions that have developed faculty/staff interview protocols or surveys for conducting activity analyses. These methodologies could be documented and made available to institutions interested in implementing TCM. Second, as more institutions implement technology-based costing, a data base reflecting compensation allocations associated with different delivery modes and activities could be established. When a critical mass of data has been accumulated, it would provide a first order estimate of costs that could be used by other institutions as they carry out their assignment analyses. Such a database could also be used to refine the BRIDGE model default parameters. Multiple steps in the costing process The assignment of expenditures to activities and courses is sometimes a very straightforward, one-step process (for example, the purchase of a web-based course from an external vendor). On the other hand, these assignments become more complex when a number of faculty share equipment, facilities, and courseware in the delivery of different courses. In these situations, there can be multiple steps in the assignment process. To illustrate this point, examples of different expenditure assignment situations are presented in Appendix A of the Handbook. While the TCM Handbook provides comprehensive structures for defining objects of expenditure and activities, filling in the matrix in Table 3, Step 5 of the TCM Handbook is not as straightforward as it first appears. It is suggested that the TCM Handbook include guidelines for making different kinds of expenditure to activity and course assignments; and/or, include examples, such as those presented in Appendix A, as a supplement to the TCM Handbook. Link to BRIDGE Gaining insights into the costs of technology-based delivery systems is an important first step in making decisions about the modes of instruction that will be supported in the future, the amounts of tuition and fees that will be charged, whether to expand or redesign existing delivery systems, etc. But, once historical costs have been analyzed, it is important to look at resource allocation

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    trade-offs, economies of scale associated with different time frames and enrollment levels, and the relationship between costs and student learning outcomes. The BRIDGE model is an important tool for examining these decision alternatives. As suggested previously, an important next step in the development of TCM would be to link the Tabulator output to BRIDGE and to utilize the results of TCM implementations to refine the BRIDGE default parameters. Involvement of the decisionmakers Institutional and academic leadership, and faculty, were not actively involved in many of the pilot test implementations. Rather, the task of implementing TCM was assigned to mid-level administrative offices such as continuing education, budget, or technology support. Consequently, there was little evidence that the results were used to support institution-wide decisions or decisions within the academic units. Clearly, this detracts from the utility of TCM and indeed makes it difficult to sustain efforts to use TCM. It is suggested that the importance of involving institutional and academic leadership (and identifying organizational steps to ensure that involvement) needs to be emphasized in the TCM Handbook, and/or through training and implementation assistance efforts described below. Training and Technical Assistance While it is clear that institutions see the importance of gaining better knowledge of the costs of technology-based delivery modes and recognize that the TCM is the direction that needs to be taken to do so there is also a sense of wheel spinning and frustration in the implementation process. Many institutions need help that extends beyond the TCM Handbook. It is suggested that WCET and NCHEMS develop a training program to support institutions interested in implementing the TCM and that the individuals who deliver this training also be available for on-site technical assistance. After an initial investment in design and development efforts, such a training and technical assistance program could become self-supporting. Summary In summary, a valuable tool has been developed by WCET and NCHEMS that is conceptually and technically sound. However, additional steps can be taken to further enhance the utility of this work, which is critical as colleges and universities across the country attempt to plan for and manage the expanding use of technology-based education.

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    Introduction and Purpose

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    I. INTRODUCTION AND PURPOSE

    The methods by which higher education institutions are delivering instruction are changing rapidly. The advent of the Internet, the World Wide Web, the CD-Rom, and interactive video that is reasonably reliable and of high quality has provided faculty with an expanded set of instructional tools tools that let them bring information resources, simulation capabilities, and other enhancements to their instructional activities. These advances have also created an explosion of experimentation with, and commitment to, alternative modes of instructional delivery. These changes are also a consequence of some high-profile organizations successfully demonstrating that there is a substantial market for instruction delivered in ways that most educational administrations and faculty would find unconventional and maybe even unacceptable. The University of Phoenix, the British Open University, and other such enterprises are examples of such successful ventures.

    This diversification of delivery mechanisms also reflects an increasing responsiveness to client expectations and needs. Clients for higher education are increasingly place-bound, largely because effective performance on the job and as a member of society requires learning throughout life. Once settled with work and family obligations, individuals have limited ability to go to the providers of higher education. If they are to be reached, the providers will have to go to them. While these place-bound adults are expanding the domain regarding where learning opportunities will be delivered, all clients are pressing provider organizations on the issue of when these opportunities will be offered. Many colleges and universities find that a preponderance of students enrolled in distance-delivered courses are simultaneously enrolled in on-campus courses. This fact points to time, rather than place, as being a critical variable for these individuals.

    Whatever the motivation, the volume of instruction being delivered either (a) off-site, or (b) on-site but with considerable technology enhancements has reached a level at which both educational and managerial questions are being raised. While a faculty member meeting with a group of students in face-to-face interaction remains the modal form of instruction, alternative forms of instructional delivery (those involving no direct personal interactions or those in which technology plays a major adjunct role) are expanding rapidly. Among academics, the debate rages about the effectiveness or quality of these newer approaches to instruction. While the debate will continue, it is too late to turn back. Recent history suggests that both the variety of offerings and the number of individuals availing themselves of these alternative forms of instruction will not only increase but will increase dramatically. The alternatives are entering and in some circumstances, becoming the mainstream.

    As these alternative forms of delivering (or augmenting) instruction become more common, they cease to fly beneath managerial radar. At many institutions, these alternatives historically have been treated as experimental or demonstration approaches to the delivery of instruction. As

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    such, they were frequently ignored in a managerial context. Alternatively, they were treated as projects funded from special allocations of resources, often from sources outside the institution. As such there was a fiduciary interest in accounting for associated costs, of the type typically reported to a funder of any grant or contract. However, as these new (to many institutions) forms of delivery have become more commonplace, decisionmakers understandably are asking questions that they previously had not asked.

    1. What are the per student costs associated with alternative forms of instructional delivery? How do costs of alternative methods compare to more traditional, face-to-face classroom instruction?

    2. Under what conditions, if any, do alternative mechanisms become cost-effective? For example, are there enrollment levels at which certain instructional methods become much more cost-effective than other approaches?

    3. What are the learning results? Are they as good as those achieved through classroom modes? Does the widespread finding of no significant differences hold in this particular case? Are learning outcomes different, not just in level but in kind?

    4. What are the levels of user satisfaction, from the perspective of both clients and faculty?

    There are too few answers for these reasonable questions. Certainly, there is not sufficient empirical evidence to yield rules of thumb that can inform managerial choices. This is not to say there are no data available about the costs of alternative methods of delivery. Indeed, many of the ongoing alternative delivery activities be they experimental, or now mainstream have developed cost or expenditure data of some form. Further, there have been efforts to capture some of these fugitive data and to:

    Develop comparative statistics regarding costs of instruction delivered through various modes (Bates and Rumble)1,

    Model cost behavior of different instructional modes at different enrollment levels (Jewett)2.

    These studies have made enormous contributions to an understanding of cost variations across different modes of delivery. As significant as the contributions of these studies are, however, they suffer from the limitations of the data on which they are based. In the cases of the comparative studies, the authors had little choice but to use whatever data were readily available. As is common in such instances, the available data resided in record systems kept in accordance with very different data categories, definitions, and data entry protocols. As a consequence, the authors were required to adjust these data as best they could in order to achieve some measure of comparability. Such post facto adjustments were pragmatically necessary if their studies were to

    1 A.W. (Tony) Bates, Technology, Open Learning, and Distance Education, Routledge, 1995. Greville Rumble,

    The Costs and Economics of Open and Distance Learning, Kogan Page, 1997.

    2 Frank Jewett has developed a simulation model (called BRIDGE) to compare the costs of expanding a campus using mediated instruction versus using classroom instruction. Copies of the BRIDGE model are available at the WCET projects website .

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    proceed. Their work would have benefited enormously from a measure of standardization in the categories and definitions of the data on which their studies were based.

    In Jewetts work in modeling the costs of alternative delivery across eight case studies, the data used were those available in the budget and accounting systems of the various campuses involved, augmented by information about faculty workload policy and salary schedules, equipment inventories, and special communications costs. For the BRIDGE cost simulation model, he used default values based upon systemwide data from the California State University. While these data are generally comparable from campus to campus (even across states), and over time, it is also true that these data reflect the experiences and the idiosyncrasies of a single institution. A good deal more credence could be accorded the results if they were benchmarked against the experiences of other institutions operating within a different set of internal rules and regulations.

    These comments and observations are not intended to denigrate the pioneering work that these studies represent. Rather, the intent is to make a case for more and more comparable data about the costs associated with delivering instruction in various ways.

    Decisionmakers need internal data that allows costs of alternative modes of delivery to be compared. There is a fairly long history of calculating costs of instruction under an assumption of traditional classroom delivery. In the generally recognized approaches to costing, mode of delivery is almost never explicitly considered; there is an assumption that instruction will be conducted on-campus, in a classroom or laboratory, using face-to-face methods of instruction. This assumption is no longer appropriate.

    Purposes of this Handbook

    Given the emergence of alternative delivery modes, there is need for costing methodologies that:

    Make delivery modes explicit, Consider the full range of costs associated with each mode so that valid comparisons can

    be made, Provide decisionmakers with information about the conditions under which different

    delivery modes have a comparative advantage.

    Objective 1: The first objective of this Handbook is to present a costing methodology that responds to an institutions internal need to define delivery modes, identify the full range of costs for those delivery modes and develop analytical data for cost comparisons.

    The development of these internal cost data is a necessary first step for decisionmakers. However, they also need a context within which they can interpret the resultsthey need benchmark information. Only by compiling data from many more of the natural experiments now underway will it be possible to develop a body of conventional wisdom about the patterns in variation of costs across:

    Different modes of delivery, Varying enrollment levels within each of the different modes.

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    By accumulating such data over time, general rules will likely emerge rules of thumb, such as those regarding differential costs of instruction in different disciplines and at different levels that emerged from cost analyses conducted in years past. These rules of thumb (such as those that help us understand the typical relative costs of lower-division versus graduate-level instruction in a given discipline or of upper-division instruction in psychology versus that in engineering) do not provide precise guides. They do, however, provide decisionmakers with information that serves them well when more detailed analyses are either not possible or not warranted. For instance, most decisionmakers expect lower-division nursing courses to cost roughly twice that of lower-division social science courses. The same level of intuitive understanding does not exist regarding the relative costs of delivering a 30-student, lower-division social science class by regular classroom instruction versus interactive video. The objective is to work toward a situation in which this level of understanding is widely shared.

    There are two paths by which this objective could be pursued. The first is to devise and utilize a common record-keeping system in which those wishing to conduct cost analyses would keep their operating (transactional) data. Data kept in a standard way, if analyzed using similar procedures, would yield the kinds of comparable information that policymakers constantly seek. While this alternative has many desirable characteristics, it is rejected as being infeasible. Institutions have made heavy investments in data systems designed to serve their day-to-day operational needs. These data systems differ considerably for a variety of reasons, not the least of which are the accounting and reporting requirements of state and local governments that provide the majority of funding to many institutions. Given the competition for scarce revenues, there is almost no chance that institutions will abandon these data systems in order to adopt a replacement that would simplify some analyses but complicate the majority of their day-to-day activities.

    The outright rejection of one alternative leads to the second as the one to be investigated further. In the second:

    Institutions continue to keep their basic data in existing, diverse record-keeping systems, These data are translated into a common set of data structures and categories. This

    translation step itself will typically require some form of analytic activity, Data in these common data structures are manipulated/analyzed in accordance with a set

    of conventions designed to produce the information deemed most useful to policymakers and other users.

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    These two alternatives can be described diagrammatically as follows.

    FIGURE 1: Data Structure 2 Alternatives

    Alternative 1

    Alternative 2

    StandardRecord-KeepingSystem

    CommonProcedures

    CalculatedCosts of

    AlternativeDelivery

    Approaches

    InstitutionalData

    Conversion

    CommonData

    Structuresand

    Categories

    CommonProcedures

    CalculatedCosts of

    AlternativeDelivery

    Approaches

    InstitutionalData

    InstitutionalData

    Conversion

    Conversion

    Objective 2: Therefore, the second purpose of this document is to propose a set of procedures by which data from multiple institutions can be placed in a reasonably common framework and exchanged or compiled.

    With this objective in mind, the document contains:

    A proposed common data structure, Definition of the data categories and elements necessary within this data structure, Specifications of the conventions and common procedures required for entering data into

    the suggested data structure, Suggestions/examples for converting these data into the kinds of analytical cost

    information needed by decisionmakers.

    Given that each institution will start the process from its own unique point of departure, it must devise its own procedures for making the conversion to the common data structure as indicated in the diagram for Alternative 2 above. While these conversion routines cannot be specified, hints as to how these translations might be done are provided wherever possible. These

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    conversion routines will most likely be implemented through use of a series of look-up tables for example, tables that describe the translation of the institutions departmental numbering scheme to the U.S. Department of Educations Classification of Instructional Programs (See Appendix A) schema recommended for use in inter-institutional exchange.

    Some Conceptual Issues

    The ultimate objective of this Handbook is to help analysts develop information that will be of assistance in the decisionmaking process. This creates complications immediately. The nature of the use/decision determines the nature of the information that is required. Since there potentially are large numbers of different kinds of decisions, there is potential need for a wide variety of information. To keep the task manageable, several choices that provide focus have been made. These choices, along with some related conceptual matters, are discussed in the balance of this section.

    1. The Use of Direct Costs

    A conscious choice has also been made with regard to handling of so-called indirect costs, costs that are directly associated with support functions of various kinds but only indirectly associated with instructional activities. Common costing parlance would have:

    Direct costs of instruction + direct costs of support activities = total costs Direct costs of instruction + (allocated share of direct costs of support activities = indirect cost)= full costs of instruction

    In this Handbook, the choice has been made to reveal the direct costs of instruction and the direct costs of associated support activities, but only where these costs can be identified. This Handbook does not attempt the allocation of direct costs of support activities (commonly referred to as indirect costs) in order to yield the full cost of instruction. This choice was made (1) because it is direct costs that are managed, and (2) to avoid the effort involved in allocating costs to obtain results that are seldom of managerial utility. As a consequence, the Handbook does not provide procedures for allocating support costs administration, physical plant operating and maintenance, etc. back to instruction.

    2. The Use of Historic Cost Data

    This set of choices has two components. First, the methodology is based on historic costs the use of actual institutional data rather than some theoretical or ideal cost factors. While the use of historic costs is the basis for the methodology presented, some aspects of standardized costing are suggested as simplifying alternatives at several points. Further, the costing framework presented lends itself to standard costing applications that is, it can be used not only with actual institutional data, but with desired values as well, a useful exercise when one wants to examine the effects of changing a key variable in the costing equation.

    3. The Recognition of Fixed and Variable Components of Cost

    Average cost calculations (e.g., total cost divided by enrollment or FTE), by themselves, are not sufficient for analyzing the costs of delivery modes based upon information technology (IT) because these modes have fundamentally different cost structures. Many (if not most) forms of

  • 7

    IT instructional delivery have a significant fixed cost component (related, e.g., to specialized equipment, communication, or production costs) that is not present in classroom instruction. In addition, the variable cost component of IT delivery may also be substantially different from that of classroom delivery. Thus in calculating costs of alternative modes of delivery it is essential that we attempt to identify and estimate both the fixed and variable components of costs prior to calculating average costs.

    The model that underlies the costing schema proposed in this Handbook is borrowed from Jewett.3 The model recognizes:

    Course-related costs the (capital and operating) costs associated with offering the course, regardless of the numbers of students enrolled in the course,

    Enrollment-related costs the (capital and operating) costs that vary in accordance with the numbers of students enrolled in the course.

    3 Jewett, Frank. (2000). A Framework For the Comparative Analysis of the Costs of Classroom Instruction vis--

    vis Distributed Instruction, in M. J. Finkelstein, et al., Dollars, Distance and Online Education. Phoenix, AZ: ACE/Oryx Press. Subsequent applications of this model to TCM cost data from several of the TCM pilot institutions is contained in Frank Jewett, TCM/BRIDGE Project: Applications of the Mini-BRIDGE Model to TCM Cost Data, WCET, 2002, . A specific application at Washington State University is further discussed and illustrated in Frank Jewett and Tom Henderson, The TCM Project: Collecting and Interpreting Instructional Cost Data, pp.15-27, Planning for Higher Education, Sept-Nov 2003.

  • 8

    A simple form of this model is illustrated in Figure 1. As defined here, the underlying model we are working with should be considered a hypothesis whose usefulness will be confirmed by how well it assists in the cost analysis. Without such a hypothesis as a guide, it is very difficult to organize the analysis or to define useful data. As with all hypotheses, this one is subject to revision or refutation as new information and findings become available.

    FIGURE 2: The Underlying Model

    There are three elements to the underlying model:

    a. For courses in which additional student enrollments are accommodated by adding course sections and for which there is no common course experience (i.e., a common large lecture).

    As enrollments increase, total direct costs similarly increase, but as a step function. Once there is a pre-determined number of enrollments, an additional course section is added.4

    Section Costs

    Enrollments

    TotalDirect Costs Section Costs

    Enrollments

    TotalDirect Costs

    4 For planning purposes the break point enrollment at which an additional section is added is often a single number thus generating a set of sections of equal size. After-the-fact section enrollments will differ according to how many students actually enroll in each section.

  • 9

    b. For courses in which adding more discussion sections accommodates additional students but for which there is an associated set of course-related costs (i.e., a common large lecture).

    Total direct costs are again a step function, being increased with the addition of discussion section and a pre-determined enrollment level. However, the common lecture provides a fixed cost underlying the added (marginal) costs of the discussion section.

    Enrollments

    Section CostsTotalDirect Costs

    Course-Related Costs

    Enrollments

    Section CostsTotalDirect Costs

    Course-Related Costs

    c. For courses (such as Internet-based courses) for which there may be high course development costs but for which additional students can be added without consideration of sections.

    Enrollments

    Section CostsTotalDirect Costs

    Course-Related Costs

    Enrollments

    Section CostsTotalDirect Costs

    Course-Related Costs

    The working model also recognizes that both course- and student-related costs can occur in multiple locations simultaneously. This phenomenon is illustrated in Figure 3. Figure 3 should be edited to replace Student with Enrollment.

  • 10

    FIGURE 3: Costs Incurred at Multiple Sites

    SEND SITE

    Student

    Course

    Enrollments

    $

    RECEIVE SITE A

    Student

    Course

    Enrollments

    $

    RECEIVE SITE B

    Student

    Course

    Enrollments

    $

    Communi

    cations C

    osts

    Communications Costs

    This diagram reflects conditions in which (for example):

    Course development costs are borne at the Send site, Multiple sections of the course, with their associated enrollment-related costs, are also

    incurred at this site, Course-related costs (for example, those associated with maintaining receive site

    capability) are incurred at each receive site, Costs associated with multiple sections are incurred at distributed sites, Costs of communication between the sites are incurred.

    4. Institutional Decisionmakers as the Primary Audience

    Much of the impetus for this Handbook came from state-level policymakers who are asking questions such as:

    What are the relative costs and benefits of alternative modes of instructional delivery? What are the likely costs of using alternative delivery modes to extend access to students

    in remote areas of the state?

    Answers to many of their core questions, however, require development of institutional-level data. At this early state of costing methodology development, procedures are written as though the audience were institution-level decisionmakers. To the extent that the needs of state-level decisionmakers are coincident with those of their institutional counterparts, this Handbook is

  • 11

    responsive to their needs. A state system office could also coordinate efforts to set analytical data needs with the Handbook. However, full treatment of the issues of primary interest to state-level users will require further developmental work.

    5. Units of Analysis

    One of the more vexing problems in any cost analysis process is the specification of the appropriate unit of analysis. This Handbook addresses this topic on multiple levels:

    The course. The Handbook begins by treating the course as the unit of analysis. It is at this level that one of the basic questions (What are the costs of alternative modes of delivery and under what conditions are various modes cost-effective?) can be addressed. This is the easiest unit of analysis to work with and probably yields the greatest payoff, at least in the short run.

    The organization unit. Some institutions have created separate units to house the majority of their distance-delivered courses. Others assign the delivery of most alternative-mode instruction to Continuing Education Departments or similar units. The Handbook provides a mechanism for segregating the direct costs of such units so that the overall unit costs of such entities can be compared with the overall unit costs of on-campus instruction.

    The method of delivery. Finally, there are many managerial questions that revolve around mode of delivery. What are the costs of Web-based courses versus the costs of interactive video courses? The course-by-course analysis addresses this question at one level of specificity. An alternative is to look at the overall cost patterns associated with all courses that use a common mode of delivery. Such analyses help ensure that all costs associated with a particular delivery mode get incorporated into the calculation and avoid the total is less than the sum of the parts phenomenon when certain costs are parsed among individual courses. The Handbook treats this topic briefly as well.

    6. A Foundation in Activity-Based Costing

    The focus of this section is to:

    Identify the set of activities necessary to provide alternative modes of instructional services,

    List the objects of expenditure associated with the resources employed in carrying out these activities,

    Recommend procedures for converting object expenditure data into activity cost data. Costing in higher education historically has been done at the program or functions level the familiar categories listed below at the heart of the process:

    Instruction, Research,

  • 12

    Public Service, Academic Support, Student Services, Institutional Support, Operation and Maintenance of Physical Plant, Scholarships and Fellowships.

    These are the categories in which data are reported to the National Center for Education Statistics (NCES) and that are incorporated into nearly all audit reports. The procedures presented in this Handbook respect these standard categories, but move beyond them to an additional level of detail to better describe how instructional services are actually designed, produced, and delivered to students. For example, instruction is disaggregated, or unbundled, to reflect the following activities:

    Curriculum Planning/Course Design, Instructional Materials Development,/Production/Acquisition, Course Content Delivery, Tutoring/Mentoring, Interaction with Students, Assessment of Learning (including assignment of course grades).

    The conceptual framework for costing activities presented here is relatively simple. The amounts of various inputs associated with each of the listed activities areidentified and the related amounts of object expenditures are placed in the appropriate box (see Figure 4).

  • 13

    FIGURE 4: Framework for Costing Methodologies

    Activity A Activity B Activity C Total

    Object A

    e.g., salaries

    $ $ $

    Object B

    e.g., office supplies

    $ $ $

    Object C

    e.g., equipment

    $ $ $

    Total

    This basic framework stays the same throughout the Handbook . Depending on the unit of analysis, the key dimensions (activities and objects of expenditure) are expanded or contracted to encompass the subcategories required; procedures for entering data are similarly adjusted. When data exchange is the objective, standardized/conventional definitions are presented for both data categories and procedures.

    Although the concept of activity-based costing is relatively simple, its application may become complex. This is especially so in regard to the estimation and measurement of faculty (and other high level professional) effort. While this Handbook is not the place for a comprehensive discussion of all the issues involved, it is appropriate to provide some context and to mention some of the important issues in keeping with the TCM objective of providing useful data for management decisions.

    Multiple types of activities

    Regular, full-time, tenured or tenure-track faculty are expected to participate in a wide variety of activities: to instruct students, to do research in their subject fields, to participate in campus governance, to provide service to the local community and their professional community. The mix of these activities varies depending upon both the type of educational institution and the

  • 14

    particular interests and aptitudes of the individual faculty. Measurement of effort devoted to specific activities is complicated because of joint products, e.g., research may generate major benefits for the instruction of students.

    Bundled workload expectations

    Because of the way classroom instruction has evolved over the years, the workload expectation for a faculty appointment may be stated as a certain number of courses per year and some level of research activity. Within the classroom format, faculty are responsible for offering the courses that are delivered to students. Thus, the cluster of different tasks associated with offering a course is often aggregated under a heading such as direct instructional workload. While this convention is reasonable when a single faculty member is responsible for all of the tasks in a classroom setting, it also tends to obscure the fact that the various types of instructional tasks can be identified separately and that the advent of electronically-mediated instruction allows for various tasks to be unbundled and performed by various individuals, including faculty.

    Costing by assignments vs. costing by activities

    For classroom instruction, costing on the basis of assignment may be completely adequate for planning purposes because faculty and administrators are familiar with expectations of the efforts related to such assignments. For example, for faculty expected to teach eight course sections per year, annual salary may be divided by eight to estimate the cost of a section. If the expectation is four courses and an equivalent amount of research effort, division by eight still yields an estimate of the course cost. It should be noted that this approach automatically allocates a proportion of faculty effort associated with any shared governance activities to the course cost.

    At this stage of development, we have little basis for determining the amount of effort associated with carrying out the various unbundled types of instructional assignments related to mediated courses. In fact, determining what would constitute reasonable assignments is one of the major costing issues related to mediated instruction.

    Developing activity cost data for mediated instruction

    Estimates of the amount of effort faculty and other professionals devote to the specific instructional tasks undertaken to provide a given type of mediated instruction can be based upon expert opinion (e.g., department administrator), interviews with selected faculty and other professionals about the effort they expended on various activities, or comprehensive surveys of all faculty and other professionals involved in the activity. All of these options require additional effort, particularly a comprehensive survey.

    (Appendix D contains additional material related to using activity-based costing.)

  • 15

    7. Costs Borne by Others

    The procedures presented in this Handbook yield the costs to the providing institution of alternative modes of instructional delivery. However, there are numerous instances in which some of the costs associated with the delivery of a course are borne by others. For example:

    Students may be required to own their own computers and thereby bear a (potentially substantial) portion of the technology costs,

    Other institutions serve as receive sites and provide space, equipment, and a variety of support services at no cost to the institution delivering the course,

    A state agency owns the communications network and provides free access to institutions.

    In all cases, these goods and/or services do not enter into the institutional cost calculationthey are free goods to the institution. At the same time, they represent an exposure to risk for the institution; the cost equation could change drastically through the actions of third parties. The partner institution may begin to charge for services provided or the state agency may decide to recover its costs from the institutions using its network. The procedures presented in the Handbook recognize these as free goods but also require that the implicit costs of such free goods be estimated. With these data, it is possible to calculate actual costs to the institution and the costs that would be incurred if the ground rules changed.

    8. The Costs of Unused Capacity

    Final cost figures can be heavily influenced by decisions made about allocation of costs of some of the productive assets, especially by physical assets. It is rare that assets such as television studios, interactive video-equipped classrooms, etc. are used to the fullest extent possible. This creates a methodological dilemma: should total costs of the asset be allocated on the basis of actual use or of use at full utilization. That is, if a room were being utilized 20 hours per week and the full utilization were determined to be 80 hours per week, is the cost per hour calculated by dividing the cost by 20 or by 80? The convention adopted in the model is that:

    The cost is calculated on the assumption of full utilization (in the example above, the divisor would be 80),

    The costs associated with the unused 60 hours are accumulated under the label of Costs of Unused Capacity.

    This approach gives managerial impetus to reducing this cost.

    The same dilemma arises when courses are underutilized, that is when enrollments are smaller than the theoretical maximum for the course. The average cost per student in a class can be halved if the enrollment is doubled. Here, the convention in the Handbook is to calculate costs per (actually enrolled) student. Sensitivity analyses can be performed by comparing this number with costs per student under conditions of maximum enrollment.

  • 16

    9. The Costs of E-Mail and World Wide Web

    There are some costs of productive assets required to teach some technology-based or technology-enhanced courses that are not explicitly recognized in the procedures presented in this Handbook. Chief among them is the costs of e-mail and of access to the World Wide Web. It is recognized that these are not free goods; the institution is incurring a substantial cost to maintain these services. However, they are ubiquitous across the campus. Everyone uses these tools and their use extends across nearly all functions and activities within the institution. It is suggested that costs of these services be incorporated into the calculations described in this Handbook only when:

    a. Procedures for allocating such costs have been developed at the institution and are in general use. If such procedures are in general use, existing conventions should be applied here. If these costs are not routinely allocated to functions and/or activities within the institution, no extra effort should be expended to do so in carrying out the procedures described in this Handbook.

    b. Separate capacity has been created to serve the unit or mode of delivery for which costs are being calculated. If overall costs of serving the continuing education unit or all Web-based courses are known, for example, then appropriate allocations should be made and the costs recorded.

    10. The Costs of Adding Capacity

    For managerial purposes, it is important to understand the point at which capacity of general utilities such as e-mail and Web access is exceeded. While they are treated as free goods for costing purposes, increases in volume of technology-dependent instructional delivery may create a requirement for significant new investments. The purpose of noting this fact is not to suggest a change in costing methodology; from the perspective of costing courses or units, these items should still be treated as free goods (except under conditions as noted in 1 and 7 above). Management should not be misled by these cost numbers into thinking that volume can be increased without incurring additional costs for providing these services. The appropriate analysis is not refinement of the costing methodology. Rather, it is analysis of technological capacity to identify when the next step-function investment will be required.

    Basic Assumptions

    The procedures presented in this Handbook reflect a set of basic assumptions. So that there are no misunderstandings, they are made explicit here. They include:

    1. The procedures are analytic procedures, not accounting procedures. The objective is not to create a record-keeping system (although the result may be to influence the content of record-keeping systems in some instances). Rather, the agenda is to suggest analytic conventions and approaches that can be used to organize data in a way that informs internal decisionmaking.

    2. As a corollary, the intent is to produce results that have utility to decisionmakers rather than results that conform to accounting and auditing standards and principles. Thus, the goal is to develop conceptually sound, meaningful estimates rather than numbers that

  • 17

    fully reconcile to accounting records. This is not an excuse or argument for sloppiness; rather, it is a recognition of the costs associated with transforming data into information and the rapid escalation in costs associated with marginal (and usually unnecessary) improvements to monetary precision in this regard. The intent is to generate results that are considerably better than back-of-the-envelope estimates, but not as precise as those that could be obtained if all transactional costs were accounted for at the course level.

    3. The procedures constructed must be applicable to all kinds of instructional delivery, from the most traditional face-to-face instruction in a seminar to asynchronous learning through courses delivered over the World Wide Web. Indeed, a primary objective is to calculate costs-of-delivery methods that many would consider non-traditional in relationship to costs associated with delivery in a regular classroom setting.

    4. Since the criterion is managerial utility, the eventual need is to have a costing framework that allows capturing data on both delivery method and scale (number of students enrolled). This will shed light on the question of whether there are conditions under which a seemingly cost-effective approach loses its comparative advantage vis--vis other approaches (and vice versa). While a single institution can develop data on alternative methods using only data originating from within, most institutions will be unable to calculate scale effects over a sufficiently wide spectrum to be useful. It is in this arena that comparable data from multiple institutionsdata developed in conformance with a common underlying modelcan have their greatest utility.

    Therefore, in order to understand cost behavior in ways that have managerial meaningand to protect against charges of inappropriate comparisonthe methodology must recognize distinctions in the following areas:

    Discipline, Level, Delivery method, Scalevariations in costs per student that arise because the number of enrollment

    varies.

    The balance of this Handbook is devoted to a description of procedures for calculating costs. Section II describes the set of procedures that can be used to calculate costs where the course is the unit of analysis. These procedures allow institutional conventions to prevail; there is no absolute requirement for standardized/common data structures and definitions. Section III takes the same concepts a step further and specifies data categories and calculation conventions for calculating costs of alternative units of analysis organizational units and modes of delivery. Section IV contains definitions of data categories and calculation routines recommended for use when the objective is interinstitutional exchange and comparison.

  • 18

    Cost Calculation Procedures: Course as the Unit of Analysis

  • 19

    II. COST CALCULATION PROCEDURES: COURSE AS THE UNIT OF ANALYSIS*

    The procedures presented in this section have been organized in two important ways:

    A. They utilize the course as the unit of analysis. Some of the complexities associated with other units of analysis (for example, an organizational unit devoted to distance education) are avoided at this juncture. These issues are addressed in Section III.

    B. They presume that the resulting data are strictly for internal use within a campus and not between campuses. Therefore, while the procedures must be conceptually consistent with procedures used to calculate cost information intended for exchange or comparison with data from other institutions, there is no imperative that common data structure and definitions be used. The standard data categories and definitions suggested for use when exchanging information are discussed in Section IV.

    Within this simplifying set of assumptions, procedures for calculating costs at the course level consist of the steps described below.

    Overview of seven steps necessary for calculating costs at the course level: Step 1. Identify courses for which cost calculations are to be made. Step 2. Write a prose description of the delivery mechanism being used and the kinds of resources being utilized. Step 3. Establish the activity structure that describes the course. Step 4. Identify the array of resources utilized in offering the course. Step 5. Assign costs associated with various objects of expenditure to the elements in the activity structure. Step 6. Calculate the costs of underutilized capacity. Step 7. Summarize the results of steps 1-6 into Table 4: Panel A: Course descriptive data, including course units and enrollment Panel B: Course cost data Panel C: Average cost data derived from Panels A and B Panel D: Costs borne by others and costs of unused capacity.

    * A version of this section was published as Dennis Jones and Frank Jewetts Procedures for Calculating the Costs

    of Alternative Modes of Instructional Delivery, Chapter 11, in M. J. Finkelstein, et al., Dollars, distance and online education, 2000, Phoenix, AZ: ACE/Oryx Press.

  • 20

    Step 1. Identify courses for which cost calculations are to be made.

    In this discussion, the term course should be interpreted as being a unit for which learning is certified/transcripted upon successful completion. Since the objective is to identify cost patterns associated with alternative modes of delivery, a course (an entity with a particular identifying number) should be treated holistically. A course comprised of a lecture, numerous discussions, and laboratory sections should be viewed as a single course with multiple components to its method of delivery. Similarly, courses with numerous stand-alone sections should also be treated as a single course within a particular mode of delivery.

    This step identifies the course(s) under investigations, therefore it is important to note the following descriptors: course title, course number, CIP code, course level, credit hours awarded for completion, distinguish type of credit (quarter, semester, other), and if the course is part of a degree/diploma/certificate program. Initially, this selection should reflect choices based on:

    a. Importance to Decisionmakers

    Are institutional decisionmakers faced with pending decisions concerning specific courses or further utilization of the method of delivery represented by these courses?

    b. Need for Baseline Data

    When dealing with cost issues, it is important to have a control/comparison group that allows the resulting cost data to be placed in a broader perspective. In the longer run, it is the intent that these procedures fuel the ability to trade cost data across institutional lines to have external comparisons for costs associated with delivery of particular kinds of courses delivered in particular ways. In the short run, and for many institutional decisions, the need is for information that compares the cost of teaching a course in the traditional face-to-face classroom mode and those costs associated with alternative delivery formats. As a result, courses offered in multiple formats are particularly useful candidates.

    c. Materiality

    Analytic time and energy should not be wasted on issues of no consequence. Instead, they should be devoted to generating data and findings that inform decisions of real importance. For most institutions, this will mean identifying a relative handful of courses and an associated control group of courses, if at all possible for which costs will be calculated.

    d. Representatives

    Given a format, courses tend to be taught in essentially the same way. For example, interactive video courses at an institution tend to be offered using a similar set of protocols, as do web-based courses, etc. As a result, there is seldom a need to calculate costs for all courses that might be delivered in alternative formats.

  • 21

    Analytic energy should be devoted to calculating costs associated with delivering those courses that are representative of the larger set.

    e. Scale

    There is strong evidence that course enrollment is a dominant determinant of the cost-effectiveness of alternative modes of delivery. As a result, it is particularly useful to calculate costs of the largest courses being offered in alternative formats and those of courses of typical size.

    Step 2. Write a prose description of the delivery mechanism being used and the kinds of resources being utilized.

    This step has two purposes. First, it provides the basis from which others including those in other institutions if data are exchanged can understand the results of the cost calculation. Second, it helps ensure that the cost calculations will encompass the full range of appropriate items. In order to help frame the subsequent analyses, a description should allow an understanding of:

    The activities being conducted in order to deliver the course, The organization or organizational units (whether inside or outside the institution)

    responsible for the activities, The resources (both capital and operating) used in performance of the activities. This description should be inclusive of required support services (such as technical support for technology-intensive courses) as well as resources, if any, required at remote sites, or individual students must provide that.

    Step 3. Establish the activity structure that describes the course.

    As indicated in the introductory chapter of this Handbook, the costing methodology essentially involves describing a two-dimensional matrix (activities on one dimension and objects of expenditure on the other) and then filling in the cells of this matrix. As a result, establishing the activity structure for the course(s) for which costs are to be calculated is a critically important step in the process.

    Table 1 lists the set of potential choices. In calculating the costs, only those relevant to the course in question should be utilized. When the unit of analysis is a single course, it is typical that the appropriate activity structure will consist of components drawn from (1.0) Instruction and (4.0) Academic Support.

  • 22

    TABLE 1: Costing Activity Structure

    1.0 Instruction 1.1 Curriculum Planning/Course Design 1.2 Instructional Materials

    Development/Production/Acquisition 1.3 Course Content Delivery 1.4 Tutoring/Mentoring, Interaction with Students 1.5 Assessment of Learning Including Assignment

    of Course Grades

    4.0 Academic Support 4.1 Computing Support 4.2 Telecommunications Support 4.3 Library/Information Support Services 4.4 Assessment Support Services 4.5 Academic Logistical Support 4.6 Academic Administration 4.7 Academic Personnel Development

    5.0 Student Services 5.1 Academic Advising 5.2 Counseling and Career Guidance 5.9 Student Access Services/Student Records

    5.91 Advertising and Marketing 5.92 Recruitment 5.93 Admissions 5.94 Financial Aid

    5.941 Financial Aid Counseling and Evaluation 5.942 Records Maintenance and Reporting 5.943 Student Employment Services

    5.95 Student Records

    6.0 Institutional Support This activity structure is based generally on the NCHEMS Program Classification Structure, an organizational structure used in the IPEDS surveys of higher education institutions conducted by the U.S. Department of Education and by many states. That structure, however, is designed to reflect institutional functions (e.g., instruction). To make the distinctions necessary for calculating costs of alternative forms of instruction, additional detail in the form of activity distinctions is required. This is especially true for the instruction function where the following activity categories are recommended:

    Curriculum Planning/Course Design, Instructional Materials Development/Production/Acquisition, Course Content Delivery, Tutoring/Mentoring, Interaction with Students Assessment of Learning (including assignment of course grades).

  • 23

    These activities are defined in Appendix B. For purposes of ascertaining costs for any particular course, the initial step is to determine whether these activities must be separately identified. These distinctions are not necessary for the majority of course sections5 in which a single individual is responsible for all of them and delivery is traditional, face-to-face in a classroom setting. In this case, the effort of providing instructional services to students is essentially bundled in the workload activities of an individual instructor. For many courses, however especially for courses taught using various modes of information technology different resources are associated with these activities, and a further distinction must be made. This is so because information technology provides the potential to unbundle faculty instructional workload into its component parts that can be performed in alternative ways and have different cost implications.

    Curriculum Planning/Course Design, and Instructional Materials Development/Production/Acquisition (items 1.1 and 1.2 in Table 1) are classified as course- related and Tutoring/Mentoring, and Assessment of Student Learning (items 1.4 and 1.5) are classified as enrollment-related. The classification of Content Delivery (item 1.3) depends upon the particular situation. The cost of a live studio and a satellite channel, for example, would be treated as course-related; help desk or postage charges for delivering materials to individual students would be treated as enrollment-related.

    The point of the distinction between course- and enrollment-related costs is that from the perspective of an individual course, course-related costs are fixed; they represent costs the campus must incur if the course is to be offered. Enrollment-related costs are not fixed at the level of the individual course; they vary as the number of students enrolled varies.

    The activities classified as course-related costs may contain another distinction that between operating and capital expense. To the extent that course materials are purchased outright or produced as part of a separately identified project with the intent that the materials be used over a period of several years, the related costs should be identified as capital expenses. These capital expenses should not be treated as a charge against the current years operation but should be amortized in accordance with the procedures discussed for courseware/software on pages 33-34 of this Handbook. The costs of maintaining courseware (whether to update the software or the course content) or the cost of leasing the courseware are appropriately treated as operating expenses.

    Beyond the instruction program, however, questions about whether to include or exclude functions/activities from the calculation become less black and white. This is due largely to the necessity of making judgments between direct costs of instruction versus direct costs of associated support programs. While, in the end, decisions to include or exclude certain items are necessarily judgment calls, the following considerations can help inform that judgment.

    5 A section is one specific offering of an individual course, e.g., Economics 100 offered Fall term 2003 at 9 a.m.in Founders Hall, room 109, is a section of Econ 100. Several sections of the course may be offered in any given term or during an academic year.

  • 24

    a. Ability to Specifically Assign Costs

    Direct costs of instruction are best conceived as those that can be explicitly tied to a specific course, while direct costs of associated support programs typically can be assigned only on the basis of some pro-rata share. Thus, if a faculty member makes use of the educational media center to get advice about how to develop a Web page for a course, the cost would normally be considered a direct cost of a support function (Academic Support). If, however, the educational media center undertook a project to develop courseware for a particular course on a project basis, that cost would appropriately be considered a direct cost of that course.

    b. Materiality

    In many situations, much effort is required to relate costs directly to instructional cost objectives, with the results not being substantially different from the identification of cost as direct costs of support function. Therefore, an important factor for consideration in the assignment of costs is the added expense of identifying costs as direct rather than indirect. The expense of making a precise assignment of costs as direct must be weighed against the precision required in satisfying the purpose for which the cost information is to be used.

    If costs are direct but particularly difficult to assign or allocate, it may be useful to arbitrarily assign a very modest cost e.g., $100 as a placeholder. This act ensures that the item is not ignored and puts it on the list with an estimate that can be improved later if additional precision becomes important. This set of judgments can easily introduce variations into the results. On the other hand, trying to account for every penny in the cost calculation can result in analytic costs far beyond the value of marginal improvements in results. The best advice is to err on the side of simplicity and add detail only in those few instances where either potential materiality (size of the potential change) or the politics of the decisionmaking process demand it.

    Step 4. Identify the array of resources utilized in offering the course.

    The second dimension of the two-dimensional cost matrix is objects of expenditure the different types of resources that are used in delivering the course. Table 2 lists the potential objects of expenditure.

  • 25

    TABLE 2: Objects of Expenditure

    1. Compensation Executive/Managers Other Professionals Instruction/Research/Professionals/Faculty

    Tenure-Track Faculty Non-Tenure-Track Faculty Teaching/Graduate Assistants

    Technicians Clerical Staff Trades Workers Service Workers

    2. Operating Expenses Office and Instructional Supplies Travel Communications

    Voice/video/data connect time charges Satellite transponder time charges

    Duplication of Materials Print Audio Video

    Postage and Other Distribution Services Contract Services

    Consulting Purchased services

    Licensespayments for the use of proprietary: Courseware Software Databases

    Rent Minor Capital Items

    3. Capital Items Facilities Equipment Telecommunication Infrastructure Courseware/Software Professional Development

    4. Costs Borne by Others Other Institutions State Agencies Students Other

  • 26

    The definitions of these objectives of expenditure categories are contained in Appendix C.

    As with the list of activities, not all of these different kinds of resources will be utilized in delivering any particular course. As a result, an initial task in the costing process is to use Table 2 as a checklist and identify those objects of expenditure that must be incorporated into the cost analysis process for the course(s) under consideration.

    Step 5. Assign costs associated with various objects of expenditure to the elements in the activity structure.

    Combining the elements of Tables 1 and 2, as shown in Table 3, creates the cost matrix around which the suggested methodology is constructed.

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    TABLE 3: Objects of Expenditure

    ACTIVITIES* 1.0 Instruction OBJECTS OF

    EXPENDITURE Course Related 1.1,

    1.2, 1.3

    Enrollment Related 1.3,

    1.4, 1.5

    4.0 Academic Support

    5.0 Student Services

    6.0 Institutional

    Support Total

    1. Compensation Executive/Managers Other Professionals Instruction/Research

    Professionals/Faculty Tenure-Track Faculty Non-Tenure-Track

    Faculty Teaching/Graduate

    Assistants Technicians Clerical Staff Trades Workers Service Workers

    2. Operating Expenses Office and Instructional

    Supplies Travel Communications

    Voice/video/data connect time charges

    Satellite transponder time charges

    Duplication of Materials Print Audio Video

    Postage and Other Distribution Services

    Contract Services Consulting Purchased services

    Licensespayments for the use of proprietary: Courseware Software Databases

    Rent Minor Capital Items

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    TABLE 3: Objects of Expenditure

    ACTIVITIES* 1.0 Instruction OBJECTS OF

    EXPENDITURE Course Related 1.1,

    1.2, 1.3

    Enrollment Related 1.3,

    1.4, 1.5

    4.0 Academic Support

    5.0 Student Services

    6.0 Institutional

    Support Total

    3. Capital Items Facilities Equipment Telecommunication

    Infrastructure Courseware/Software Professional Development

    4. Costs Borne by Others Other Institutions State Agencies Students Other

    * With appropriate detail from Table 1 as determined in Step 3

    In simple terms, the task is to add cost information, as appropriate, to the matrix shown in Table 3. The as appropriate is emphasized to reinforce the point that, for many courses, there will not be entries in many of these rows and columnsor even in most of them. For simplicity, the matrix for each course for which costs are being calculated should be constructed using only those activities and objects of expenditure appropriate to that course. The extended lists presented in Tables 1 and 2 should be used as a checklist rather than suggestions that all of these entries are needed to describe any one course.

    With this framework (matrix) established, the task for Step 5 is to enter cost figures into this format. Since the procedures are analytic rather than accounting devices, several shortcuts and conventions should be considered in making these entries. Suggestions for making these entries are presented below. They are organized by object of expenditure; however, it should be remembered that costs should be estimated for each activity, as appropriate, for each object of expenditure.

    a. Instruction/Research Professionals

    Instruction/Research Professionals are those individuals typically labeled as faculty and graduate assistants/teaching paraprofessionals. Differing practices of institutions regarding who is and is not considered a faculty member requires the use of this more precise term as defined in Appendix C. Suggestions regarding procedures for attaching costs of instruction/ research professionals to the activity structure include:

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    (1) Use data that is based upon assigning costs to each course as the basis for the calculation unless the institution already has a fully functioning faculty activity reporting system in place. If, for example, the institution has a four-course teaching load for each of two semesters, assign each course one-eighth of an individuals load for the year. If the normal teaching load is two courses per semester, with 50 percent of the faculty members time allocated to research and public service, then each course would still represent one-eighth of an individuals load for the year. The same algorithm applies for graduate students.

    (2) Be concerned initially that the total resource commitment of an individual to course is accurately captured and reflected. Then distribute this total across activities only if this distinction is important (i.e., the individual does not perform all the activities associated with the course). If distribution of costs across activities is appropriate, it is suggested that percentage allocations be made based on information obtained from a knowledgeable source (the individual involved, or a department chair).

    (3) Provide entries for such items as materials development only if there is a clearly established basis for determining costs for example, faculty members are given release time to develop course materials or assessments. If the materials developed are intended to have a useful life of more than one year and/or they are to be used in teaching the course multiple times, an appropriate allocation must be made. Suggestions in this regard are treated in the part of the capital section dealing with acquisition/development of courseware.

    In the absence of identifiable time (and therefore, costs) that can be associated with the creation of an asset, there is little need to cost these elements separately.

    (4) Use average compensation by type of personnel when making cost calculations. Since overall costs are so heavily influenced by the personnel component, using actual compensation of the specific individual teaching the course may yield a result that is attributable more to the accident of personnel assignments than to actual costs. Using ave